Drivers are paying more for their car insurance than ever before, with increased repair costs, tax increases and the rising cost of whiplash claims all contributing to the rise.
What's happening to car insurance costs?
The Association of British Insurers (ABI), which represents the views of the UK’s insurance industry, says that the average price paid for comprehensive car insurance in the fourth quarter of 2016 was £462 – up 4.9% on the previous year, and equating to a rise of £22 per policy.
The previous record high came in the second quarter of 2012, with motorists being charged an average of £443.
And the ABI is warning that premiums could rise even further, as the Ministry of Justice is currently reviewing its so-called discount rate. When victims are awarded a large amount of compensation, the sum they receive is discounted to take into account the returns they’re likely to receive when that sum is invested. The current discount rate is 2.5%.
What is driving up premiums?
There are three key areas where costs for motor insurers have risen, and those costs are then passed on to consumers in the form of higher premiums.
The first issue is the cost of repairs. Modern cars are far more technologically advanced than cars of even 10 years ago, with more electronics, safety aids and fuel-saving systems in place. When modern cars need repairing, the complexity of the repair, the cost of replacement parts and the specialist tools and knowledge required to complete the job mean the average repair bill is higher than in previous years. In fact, the ABI says the average repair bill has risen by almost 32% over the last three years, to £1678 towards the end of last year.
Another factor is tax. Insurance premium tax has been raised on three occasions since the July 2015 Budget, and when the latest rise comes into force at the start of June the rate will have doubled from 6% to 12%.
Personal injury claims, including whiplash, have also become more expensive, with the average payout coming to £10,674 in the third quarter of last year. The government has already promised a crackdown on fraudulent whiplash claims, which could collectively save around £1 billion – or £40 off every motor insurance policy in the country.
The ABI’s assistant director and head of motor and liability Rob Cummings said motorists were “bearing the brunt of a cocktail of rising costs” and warned that the government must not “give with one hand and take away with the other” when it comes to reviewing the discount rate.
How can I save money on my car insurance?
Car insurance premiums are one of the single biggest costs for drivers, but fortunately there are plenty of ways to reduce your premiums. What Car? has put together a comprehensive guide covering all aspects of car insurance, from where to get the best deals, to choosing the right policy and how to reduce your premium.
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